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How about capitalism with American characteristics?

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The Great Financial Crisis soured China on American-style capitalism. And it seems to have done the same thing to America. U.S. policymakers are now embracing a sort of “capitalism with Chinese characteristics,” as The Financial Times puts it. They fear Beijing’s super-genius central planners will steal our economic lunch unless Washington adopts its own sweeping industrial policy. America must become more like China — at least a little bit — if it is to become great again.

Long-time Washington wonks have heard this story before. Back in the 1980s, Japan was the rising Asian power that had devised a superior economic recipe. And then America went on to dominate the global internet economy.

Now China is the nation that’s figured out how to do industrial policy right. But has it really? According to a new report jointly released by the World Bank, China’s Development Research Center of the State Council, and China’s Ministry of Finance, China’s “productivity growth has been slowing since the global financial crisis and has remained relatively low, despite signs of modest recovery in recent years.” Their solution: The Chinese government must become “less market interventionist and more market supportive.”

Similarly, America’s eager planners should be careful in their tinkering and worry considerably about unintended consequences. Should Washington spend a lot more on basic science research (while staying open to immigration and trade)? There’s a strong case to be made that it should. But should it also, say, try to spread the research wealth by creating mini-tech hubs around the country? Maybe not. First, government has a poor record at intentionally doing so. While military spending and the space program boosted Silicon Valley, there was no grand plan to create a Science City, as is recounted in The Code: Silicon Valley and the Remaking of America by Margaret O’Mara.

Second, be cautious in shifting innovation away from existing American tech hubs. In “The Effect of High-Tech Clusters on the Productivity of Top Inventors,” economist Enrico Moretti finds as follows:

“Clustering of the high-tech sector may exacerbate inequality in earnings and income across communities. At the same time it appears to be important for overall production of innovation in the US. Policies designed to spread innovation across communities, such as place-based subsidies that favor areas with little high-tech presence, need to take into account both benefits and costs.”

Don’t forget capitalism with American characteristics has been pretty successful so far.

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